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In this present world of globalisation, most, if not all the organisations are facing the ever changing challenges of keeping sustainable profitability to be able to survive, particularly in this current economic downturn situation.
In all the organisations, one of the major challenges is the need to manage its resources - Human resources which are considered as its "most valuable assets"- . This is where the Human Resource Management (HRM) has its place.
Brief History of HRM
Before HRM, Personnel Management (PM) saw its debut in the year 1970 and comprised of the activities like recruitment, selection, work conditions, welfare of employees and training and development and employee exit (retrenchment, retiring schemes) Henderson, (2008). It was the only process used by the large organisations in managing its people resources. PM is called the traditional method - also called the personnel administration - and it plays such role as intermediary between the employer and the employees.
Since 1980, HRM evolved from PM and is believed to be "new" versions of PM by some while others consider that it is a "new wine in an old wineskin". However HRM has added functions compared with the PM and is defined as the strategic, integrated and coherent approach to the employment, development and well-being of the people working in organisations.
Moreover, HRM is a management that deals with recruiting, selecting, training and developing human resources within an organization. When properly managed, the HRM can contribute a lot in achieving the organization's strategic objectives.
Many managers and management theorists believe that HRM is a vital element in the survival and success of the 21st century organisations. Peter Drucker, (1993) refers to the idea that people's skills, knowledge and creativity are the key resource for economic and organisational success which he called 'the knowledge-based economy' (Henderson, 2008).
Definition of Human Resource Management: The HRM is defined as a strategic, integrated and coherent approach to the employment, development and well-being of the people working in organisations (Armstrong and Baron, 2009).
The differences between Personnel management and Human Resource Management is that, PM considers people as economic persons who work for money or salary whereas HRM views people as having economic, social and psychological needs. A brief comparison between HRM and PM is given in the following table.
Functions of HRM
The functions of the HRM are split into two parts namely; the Managerial functions and the Operative functions.
The emphasis is on the strategic part of the management of people within the organisation.
Treating people as assets instead of cost.
Adopting the Unitarist approach rather than the pluralist approach (Employee and employer have same interests).
Encourage the line managers to apply the HR functions toward their subordinates.
The HR manager therefore, faces multiple challenges among which is to ensure, on one hand, that the right employee is recruited and employed for the right job, at the right time and on the other hand, to have a sustainable competitive advantage to ensure that the organisation achieves its strategic aims. Therefore, the HR manager has to set up within the HRM scope, a performance management system that will ensure that the organisation and its employees as well as the individual have the skills to perform and be motivated to contribute in the success of the company.
The Performance Management System (PMS)
The word Performance basically means "the accomplishment, execution, carrying out, working of anything ordered and undertaken (output/outcomes)". It is also "about the action of doing the work as well as the results achieved" (Oxford Online dictionary, 2012).
History: There is no full evidence on when formal performance management started but it is said that it began with the emperors of the Wei Dynasty (AD 221 - 265) where there was an "imperial rater" who evaluated the performance of the official family. Then it was recorded centuries later a system was established by Ignatius Loyola and the rating of the members of the Jesuit Society was formally done.
The Milestones on Performance management are briefly given as follows:
First monitoring system evolved from the work of F. Taylor before World War I.
Rating of military officers was done in the year 1920s.
Merit rating came to the USA & UK between 1950s and 1960s.
Management by Objective during the 1970s
Result oriented system was issued in 1970s as well.
The term "performance management" was first coined in 1970s by Beer and Ruh. However, the process was not accepted until during the latter half of 1980s. (Beer and Ruh, 1976).
(Armstrong and Baron, 2005).
Definition: According to Armstrong and Baron (1998), "Performance Management is both a strategic and an integrated approach to delivering successful results in organizations by improving the performance and developing the capabilities of teams and individuals".
PMS can also be defined as the "process of taking systematic action to improve organisation, team and individual's performance expectations to be defined and creates the basis for development of organisations and individual's capability" (Armstrong and Baron, 2010).
The purpose of a PMS is to:
Communicate an organisation's vision of its objectives to all employees.
Set performance targets in departmental and individual levels.
Conduct performance appraisal sessions once or twice a year to review the progress of the employees in relation to the targets set.
Identify gaps in the training, development as well as establish any reward wherever needed.
In this case, the organisation can benefit from the improved skills and competency of its employees because they would have become aware of what is expected from them while moving toward a sustainable profitability. The overall performance of the organisation will then improve and will manage to reach its strategic objectives and gain in competitive advantage.
Performance Appraisal (PA)
Definition: A performance appraisal or performance review is a review and discussion of an employee's performance of assigned duties and responsibilities. PA is sometimes used to refer to PM which is different as PA is only part of the PMS and is used to rate the employee within an organisation.
The appraisal is carried out once or twice a year which differs from organisation to organisation. It is based on an evaluation done by the manager with the employee and the results obtained on the employee's job performance; not on the employee's personality. The appraisal process is a system that an organisation uses to define and measure the skills level of each employee by the manager or supervisor. The result is then reviewed by both the subordinate and the manager to determine whether there is any need to improve on the skills by providing training or to decide whether the employee could be promoted to a higher level if his/her performance is above what was defined initially.
The aim is to help the employees improve and in so doing, contribute in the improvement of the organisation's performance to meet its strategic objectives.
Some History on PA
There was quite a lot of research being carried out in the past decades and the main purpose of the research is to minimise the rating errors. In the years 1950 to 1960, have seen the need to use the graphic rating skills which is related to a trait-based evaluation method and other discussions on changing the number of scale points (Peters & McCormick, 1966). Other researchers started discussions on behavioural rating during the years 1950s (Flanagan, 1949, 1954). Then the Behaviourally Anchored Rating Scales (BARS) and the Behaviourally Observation Scale (BOS) were developed at a later stage.
Many alternative models were proposed and tested until discussions were held on the need to move away from the focus on rating scale to consider the "rater" particularly, as argued by Landy and Farr (1980).
Three broad factors were identified which pertain to the performance rating namely;
Job performance of the "ratees".
Rater's biases on the performance.
And finally, the measurement error.
(Wherry and Bartlett, 1982). (Budworth and Mann, 2011).
Other issues with performance appraisal
The other issues that could be found may be attributed to one of the following reasons:
Appraisal is not done according to a standard or behaviour or even a benchmark.
Unreliable human judgement
Issue of validity and bias from the appraisers.
The difficulty in knowing the contribution of the employee because the appraiser does not know the appraisee well enough (Kinnie and Lowe, 1990:47) for the latter is constantly changing department (Howell and Cameron 1996: 28).
External factors like resources, processes, technology, corporate and HR strategy, working environment, external business context and management influencing directly on the employee's performance.
In order for an organisation to implement a PA system that is suitable for both the management and the employees, it is crucial to use a system which has some of the following features:
A system on which all the managers who will be using the system are well trained on and accustomed with.
The system which follows the S.M.A.R.T objectives - Specific, Measurable, Achievable Relevant and Time bound - clear, unambiguous, understandable and challenging to both the managers and the employees. This will prevent frustration, demotivation which may impact on the individual's performance.
The PA method used should be transparent, that is, the manager should inform on the contents of the appraisal types to be used before carrying out the appraisal itself. Also, both parties could sign the document after having completed the appraisal if they agree.
In the case where an appraiser deliberately alters the rating, this is considered as "unfair" and the PA system should cater for such injustice (Budford and Mann, 2011).
When the PA is completed, the management has to provide feedback to the employees informing them on their respective performance level and whether they have reached the objective set in the previous PA sessions. If any employee is under performing, management should identify the gap and provide for any enhancement program to help the employee to improve.
Therefore, the PA which is a continuous process will proceed on and the individual and also the team will benefit from a continuous performance improvement into the future. The organisation will also improve in its performance and will be able to better compete and excel in the business arena.
Analysis and Discussion
Armstrong and Baron (2005) argued that "performance appraisal systems should be seen as being transparent and equitable, providing reporting consistency and regular feedback on performance".
The two organisations that were selected are the CIM Global Business and AW Wong Trading Co Ltd. The former is a company which is considered as a large corporate with 320 employees and the latter company is employs 22 people. The company profiles of both companies may be viewed in the Appendix.